Chapter 4 of Britain at the Polls 2010 brings this tax perspective:
From the early 1990s the City had sought to justify light-touch regulation and tax concessions by listing the many socio-economic benefits of finance … The most persistent of the City’s claims was that tax revenues from finance were a key source of funding for New Labour’s social programmes. But … over the 5 years from 2002 to 2007, tax receipts from finance totalled £153 billion and averaged just 6.7 per cent of government receipts. In the same period, manufacturing employed many more workers, who all paid taxes under strict pay-as-you-earn (PAYE) rules, so that this sector delivered twice as much tax revenue.
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11 Comments
I must admit to being shocked by this. Labour talked up the importance of the sector, and since coming to power the coalition have highlighted Labours too heavy reliance on this sector as a component of the financial crisis. Looking at this the figures don’t seem to back either up.
It also calls into question whether Osbourne pitched the requirements on the banks too low.
I call £30 billion a year a pretty serious contribution. I’m not sure what the point of the comparison with manufacturing was though?
There sure as hell shouldn’t be any special treatment for tax purposes for financial services though. They should pay under as strict a regime as any other industry.
I seem to remember Will Hutton pointing this out some time ago. You shouldn’t be surprised. Look how many MP’s come from a finance background. Look who is bankrolling the Tory party. None of the claims made by the City stand up to serious analysis. The financial crisis has shown us that democracy is little more than theatre. We are living in a plutocracy.
Not sure what point they are making. Bonuses in fiinnacil;a servcies are paid under exactly the same PAYE rules as any other job.
In any event it isnt either/or. FInancial servcies doing well doesn’t stop manufacturing doing well or vice versa
So it will take the banks nearly 30 years to repay the 850bn in support from their taxes; assuming they don’t find yet another “tax efficient” way to reduce this
@Simon McGrath
“the same PAYE rules as any other job”
Not quite that simple. There is not an elite who get such large cash sums in manufacturing, the majority of those will pay directly through wages and there is not the scope for the tax limiting measures those who get larger bonuses can (for example taking shares and using the massive pension allowances).
@Redndead – the banks didnt get 850bn in support, that is the total including guarnatees which they are paying for. the only direct money was the investment in their shares on which the government is likley to make a profit.
@steve way – shares and options are also taxed through paye. There are some large bonus pots but since the 1980s there have been restriction on how much you could put in them. Oddly Gordon Brown did chnage the rules to allow much larger payments but they would not amount to the sorts of money being talked about.
@steeve way – meant pension pots
There is a strong case to be made for more effective regulation, or for the regulators to do their job better.
But comparing the overall tax take from the financial sector with that from the manufacturing sector isn’t a particularly strong way of making that case.
It isn’t an either/or situation. A less successful financial sector doesn’t necessarily mean a more successful manufacturing sector.
The key issue for me is how the Government maximises its tax take overall, and that means striking a balance between regulation, tax levels and incentives, and it may mean treating different sectors, which have differing levels of mobility, differently.
@Simon McGrath
The limit on pensions has just been “lowered” to £50,000 per year. Slightly more than the average factory worker or manager could afford….
Shares can be used to avoid some tax and if kept long enough can also (I think) avoid capital gains.
@Steve can you please explain how shares can be used to avoid tax. They are subject to income tax and NI on vesting and after they become the employees property they are subject to CGT just like any other investment.